Insurance Chapter 5
Life insurance policies that pay dividends are referred to as "participating policies". Participating policies pay dividends to policyholders. Which of the following is a true statement about dividends?
Dividends are not taxable. Dividends are usually paid on an annual basis. Dividends are actually a return of overcharged premiums. * All of the above
Under what conditions will the waiver of premium rider pay benefits?
If the insured is totally and permanently disabled
How long is the loan period on STOLI arrangements?
2 years
The appropriate rider allows premium payments to be waived in the event of disability. What is the normal waiting period for premiums to be waived?
3 to 6 months
What is the primary purpose of the entire contract provision in a life insurance policy?
Provide assurance that the policyholder has all necessary policy documents in their possession
Julie applies for a health insurance policy. Her consideration consists of:
Statements made on the application and initial premium
Eddie wants to use a nonforfeiture option. Which of the following may Eddie not use?
accumulation at interest
Jennifer is trying to add her insurance premium payments to her budget. All of the following are accepted payment mode options, EXCEPT:
Monthly Annually Quarterly *Biannually
Gerry forgets to pay his life insurance premium, and the policy lapses. If he is within the reinstatement period and decides to reinstate his policy, he will be required to take all of the following actions, EXCEPT:
Provide proof of evidence of insurability Pay all past-due premiums Pay any back-due interest on an outstanding policy loan * Surrender or cancel the policy within 10 years of the reinstatement date
When a juvenile covered by a payor rider reaches the specified age, what happens to the ownership of the policy?
The juvenile can assume ownership of the policy.
All of the following are true regarding the reduced paid-up insurance nonforfeiture option for life insurance policies, EXCEPT:
With the reduced paid-up insurance option, the policy may be reinstated to the original face amount within the terms of the reinstatement provision. Any outstanding policy loans plus interest would be deducted from the cash surrender value prior to purchasing reduced paid-up insurance. The cash values act as a single premium to purchase reduced paid-up insurance. * The reduced paid-up insurance option allows the policyowner to purchase paid-up term coverage at a reduced face amount based on the amount of the policy cash value.
A policyholder has the right to examine the policy purchased. If the policy owner returns the policy to the insurer within the specified time, to be cancelled, he/she can expect:
a full refund
The principal sum of a AD&D rider attached to a life insurance policy pays:
a principle sum if the insured loses both hands, both arms, both legs, or both eyes.
Which life insurance dividend option does not increase a policy's cash value?
cash payment
Which of the following nonforfeiture options does not allow the insured to reinstate the policy:
cash surrender
The ____________ clause states that the insurance coverage is in place on application and the payment of the first premium.
cosideration
Which nonforfeiture option is the "automatic" option?
extended term option
If no beneficiary is named in the insuring clause of a life policy, what happens to the benefit proceeds?
goes to the estate of the insured
Which of the following is not true about the accumulation of interest dividend option?
* Dividends left to accumulate at interest are part of the policy's cash value. The option allows the insurer to retain the dividend. The dividend earns a rate of interest specified in the policy. Policyowner can withdraw dividend tax-free.
When the extended term option is used, the face amount is:
Equal to the original coverage
All life insurance is either term insurance or cash value insurance. Term insurance insures your life only for a specified time. Which of the following is not true about term insurance?
Term insurance could be for 5, 10 or 20 years. Term insurance only pays if the insured dies or becomes disabled. Term insurance premiums are based largely on the age of the insured. * Term insurance builds cash value.
Withdrawals or partial surrenders can be made on the cash value of a universal life policy. Which of the following is specified in the policy?
how much can be withdrawn
Some riders can affect the death benefit of a life insurance policy. Which of the following riders can decrease the death benefit?
long-term care rider
Which of the following is a guarantee that is required by law to be a part of life insurance polices that build cash value?
nonforfeiture option
Which of the following provisions allows a life insurance policy to continue beyond the grace period when a premium is overdue and not paid?
nonforfeiture option
Rick is planning on getting married next month. He currently has a $100,000 whole life participating policy. Because he is planning a family, he wants to increase his life insurance while keeping his costs down. Which of the following options would best suit his needs?
paid up additions
The Guaranteed Insurability Rider, or GIR,
permits the insured to buy additional amounts of life insurance coverage at specific points in time in the future, as specified in the policy, without proof of insurability.
Of the following individuals, who has the right to change the beneficiary designations in a life insurance policy?
policyowner
What nonforfeiture option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the policy's existing cash value?
reduced paid-up insurense
The insuring clause of a policy includes all of the following, EXCEPT:
The names of covered individuals The effective date of the policy The period of coverage of the policy *The amount of the policy premium
All of the following are part of the entire contract provision, EXCEPT:
States who can make changes to the contract Policy Application * States that the insurer's promise to pay benefits is contingent upon the policyowner's premium payments
Which provision is mandatory in life insurance policies?
Grace period
In most states, the period of contestability for material misrepresentations made on a life insurance application is:
2 years
Which of the following does happen if an insured dies during the grace period of a policy?
The face amount of the policy is paid to the beneficiary. The overdue premium is deducted from the paid benefit. Any interest due on the overdue premium is deducted from the benefit.
What nonforfeiture option permits the policyowner to use the cash values to purchase paid-up term life insurance coverage?
extended term
Which of the following is not a dividend option?
reduced paid-up insurense
If a policy loan is unpaid, the automatic premium loan provision has the effect of deducting the amount of the loan with interest from the death benefit. What should the policyowner do to avoid this reduction in the death benefit?
repay the loan with interest
The applicant's statements in the application are considered ______________ and not _____________, unless fraudulent.
representations; warranties
The stipulated period of time, allotted by the insurance company, to allow a policyholder to make an overdue payment while the policy remains in force and coverage is provided is called the _____________.
Grace period
Mr. George will soon receive a dividend payment on his life policy from the insurer. Which of the following is NOT an option available to Mr. George pertaining to receipt of his dividend?
He may apply the dividends to overdue premiums from past years.
Joanna's cash value in her life policy was reduced to zero. Which of the following statements is TRUE about the effect on her cash value life insurance policy.
Her policy lapsed when the premium did not get paid.
This provision identifies the named insured, type, and amount of coverage provided by the policy:
Insuring clause
What part of the insurance contract contains the insurer's consideration?
Insuring clause
Which of the following policies allows partial withdrawals or surrenders?
variable universal
All of the following are ownership rights, EXCEPT:
Right to name a beneficiary Right to take out a policy loan Right of assignment *Right to make changes to the policy
The automatic dividend option is:
paid-up additions
This dividend option provides additional permanent coverage:
paid-up additions
Of the following life insurance policy riders, which does not alter the amount of the death benefit?
payor
Jon's life insurance policy contains a disability income benefit that will pay him a periodic income in the event he becomes disabled. What factor determines the amount of the benefit?
the face amount of the policy
Gail has no children and has decided to make a gift of her life insurance to her alma mater. This type of assignment is voluntary and also usually absolute and complete. Specifics of this type of assignment include:
All the rights of the policy are assigned. The assignee has the right to use the cash value of the policy. The policyowner cannot recover surrendered rights.
Barney dies during the grace period of a life insurance policy. The insurer will:
Pay the death benefit minus the overdue premium
Charlotte decides to exercise a nonforfeiture option. Which option is not available to her?
Reduce premium payment
Which of the following best describes the automatic premium loan provision of a life insurance policy?
The insurer will automatically use the policy cash value to pay an overdue premium.
Transfer of ownership rights from one person to another is described by the:
assignment clause
Which type of assignment is partial and temporary?
collateral
Which life insurance rider pays an amount equal to the total premiums paid as long as the insured dies during a certain time period, as stated in the policy?
return of premium
What is the term for a policy element that adds or takes away coverage?
rider
Mr. Johnson has decided to surrender his whole life policy, and has chosen the reduced paid-up nonforfeiture policy option. How will this decision affect the cash value of his new policy?
the cash value will continue to increase
The entire contract clause of a life policy provides all of the following;
A copy of the insured's application Approved riders and endorsements A copy of the basic policy